The holidays are a make-or-break time for Amazon sellers. This is the time of year most sellers make the majority of their annual sales and lay the foundation for growth in the coming year. But it’s also a time when things can get really tight, financially speaking. Opportunities abound, but in order to take advantage of them, you have to have a good handle on your cash conversion cycle.
Your cash conversion cycle (or CCC) is the difference between when you sell something and when you get paid. To dive in a bit more, it’s a measure of how quickly a company can turn its raw materials into finished products and then get those products into the hands of consumers who are ready and willing to pay for them.
With Amazon now holding onto your money for up to 28 days, the time between selling something and getting paid is getting longer for online sellers. That hurts your cash conversion cycle and dampens your ability to grow during the holidays. Slow cash conversion limits your ability to restock, invest in marketing, launch new products, and take advantage of big opportunities.
One of the most important things you can do to ensure a successful holiday season is to focus on your cash conversion cycle.
What Is Cash Conversion Cycle?
Your cash conversion cycle (CCC) is the amount of time it takes for you to convert your inventory into cash. In other words, it’s the difference between when you sell something and when you get paid. The shorter your CCC, the better off you’ll be. That’s because a shorter CCC means that you have less money tied up in inventory and receivables at any given time. This frees up cash that can be used to reinvest in your business, pay off debt, or fund other activities.
Pro-Tip: Instantly shorten your cash conversion cycle with faster payouts. Sellers with minimum $10,000 average monthly sales qualify can qualify in minutes to get daily working capital this holiday season from Payability. Get started here.
The Problem with Longer CCCs During the Holidays
A longer CCC can put a strain on your business, especially during the holiday season when customer demand is at its highest. That’s because a longer CCC means that you have less money available to reinvest in your business or fund other activities. Additionally, if customer demand unexpectedly drops, you may find yourself stuck with excess inventory that you can’t sell. This can lead to big financial losses for your business.
Here’s why: if it takes you eight weeks to convert your inventory into cash, but you only have enough cash on hand to last six weeks, then you’re going to run into problems. You’ll either have to slow down production or find some other source of financing—neither of which is ideal during the busy holiday season.
When customer demand is high and retailers are competing for market share, a longer CCC can be especially dangerous. That’s because a longer CCC could mean that a retailer doesn’t have enough working capital to buy inventory and keep their business running smoothly. As you can see, a lengthy CCC can quickly become a self-perpetuating downward spiral during the holidays.
The Upward Spiral of Shorter Cash Conversion
On the other hand, a short cash conversion cycle means that you’re selling products quickly and efficiently, getting paid quickly and efficiently, and using that income to pay for inventory, cover expenses, and reinvest in your business. Where a long conversion cycle can lead to a downward spiral, a short CCC can lead to increased profits and exponential growth—an upward spiral.
Services like Payability can help you jumpstart your upward spiral this holiday season. Daily working capital helps sellers take advantage of year-end opportunities and reinvest in growth. The self-fulfilling upward cycle is enabled by early access to payments and sellers always having cash-on-hand when they need it.
How to Improve Your Cash Conversion
There are a few things you can do to improve your CCC.
- One is to offer more payment options to customers, such as financing or layaway plans. The options within Amazon are somewhat limited but they do exist.
- Another option is to offer shorter return window periods. This will discourage customers from taking advantage of return policies by buying items with the intention of returning them later. Again, this option can be limited within the Amazon marketplace.
- Using a third-party fulfillment service like Fulfillment by Amazon (FBA) can help you move inventory faster and get paid sooner.
The Fastest, Easiest Way to Shorten Your CCC as a Seller
The last one is big, and a no-brainer—It’s Payability. Services like ours instantly shorten your cash conversion cycle as an Amazon seller. We give Amazon sellers early access to their payments and allow them to skip Amazon’s 28-day payout window. Plus, with Payability, you’ll never have money stuck in your account level reserve. During the holidays, that means you’ll have cash-on-hand to take advantage of opportunities and avoid stockouts.
Instantly shorten your cash conversion cycle with Payability. Apply now and see your options in minutes. No upfront obligations, no credit checks. Minimum $10,000 average monthly sales on Amazon and/or Walmart.com required.
Conclusions for Sellers This Holiday Season
The holidays are a crucial time for online retailers to monitor their cash conversion cycles closely. It’s high stakes for Amazon sellers.
A longer CCC driven by Amazon’s payout process can put a strain on businesses, tying up much-needed cash in inventory and receivables. There are a few things businesses can do to improve their CCCs, such as offering more payment options and shorter return window periods. Using a third-party fulfillment service like Fulfillment by Amazon can also help increase cash flow by moving inventory faster. One nearly magic solution for sellers is Payability, which offers daily working capital via early access to Amazon payments.
So, if you want to make the most of year-end opportunity and start 2023 on the right foot, you’ll want to tighten up that cash conversion cycle leading into the holidays. Happy selling.